Index funds are like ready-made portfolios that track specific financial indexes, sectors, or industries. They spread money across dozens, hundreds, or sometimes thousands of different stocks, offering diversified market exposure without the hassle of researching each stock individually.

Income investors should consider the Vanguard High Dividend Yield ETF (NYSEMKT: VYM). The index fund can turn small contributions into significant sums that generate substantial dividend income. For instance, $500 invested monthly could grow into $915,300 over three decades, and that total could generate $27,000 in annual dividend income.

Here's what investors should know.

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Source Fool.com